Strategic Goal Setting for Banks

 

GOAL SETTING IN BANKING INDUSTRY.

Performance management in the finance sector is crucial, and its key element is goal setting.

Setting goals - Banks typically set clear goals for individual employees, teams, and departments that are aligned with the institution’s broader strategic objectives. KPIs are crucial metrics that gauge performance against strategic goals, including profitability, operational efficiency, customer satisfaction, and digital innovation. 

In these scenarios, people in the banking industry work to achieve their goals within a specific timeline. Based on the period, the bank classifies  these goals as short term or long term.  

Short-term goals serve as the building blocks for achieving long-term success. These goals typically focus on specific goals to be reached within a year. Effective short-term goals support improving operations and customer service. Short term goals depend on numerous elements such as macroeconomic conditions, regulatory requirements, interest rates,.etc.

 

Here are some short term goals in the banking sector

1. Growth of revenue: Setting goals to increase incoming cash flow.  Such as Increasing PAT(profit after tax ) by 10% within 12 Months.

To achieve this target, banks should increase  interest based income and  fee based income,

Interest based income -

• Growth of assets and liabilities by 10% 

Setting targets to increase CASA portfolios, fixed deposit portfolios, loan portfolios, and introducing new products (new asset or liability products). Setting targets for opening accounts, such as opening 200 accounts per month,

            Fee based incomes are

• Increasing  issuance of cards  by 5% (This will lead to generating more income through  Card issuance fees and card related  transaction income)

• Increasing trade transactions by 5% (Commission based come such as LC and DA issuance) 

• Increasing fee earned from foreign remittances by 5% (income generating through foreign exchange margin and commission)

• Increasing fee earned from insurance products by 5% (Commission based income from insurance companies)

2. Cost optimization: Reducing expenses is a key short term target for increasing profit. It should be tracked separately in two categories: interest and noninterest.

• Decreasing NPL (non performing loans) ratio by 5%

• Increasing NII (Net Interest income by maintaining a margin for the cost of the fund) 

• Decreasing direct and indirect costs  by 5%

• Increasing digital transformation by 10%(reducing cost by automation)

2. Setting goals for risk  Management: 

 

Effective risk management is essential for banks to prepare for potential adverse events and minimize their impact. It involves identifying potential internal and external existing or emerging risks and threats that may negatively affect the bank's strategic goals and safeguard its assets and reputation. Banks emphasise this when setting goals and developing a process to strengthen their risk  frameworks, especially in the wake of potential credit risks(credit quality), market risks (interest rate fluctuations), operational risks (lapses and fraud), portfolio risk (maintaining capital adequacy), etc

In the banking sector, long-term goals often focus on sustainable growth, enhanced customer relationships, technological innovation, and financial stability, requiring continuous investment and adaptation to a dynamic environment. 

3. Digital Transformation:

In goal setting, it’s essential to assess the current banking landscape and economic trends. Fintech innovations, changing customer preferences, and regulatory updates are constantly shaping the market

In 2024, digital banking has cemented its place as a cornerstone of consumer banking preferences. The survey reveals that 91% of respondents' access to mobile banking and online banking is a critical factor when choosing a bank, more so than traditional priorities like security fraud protection and quality customer service.

Banks should focus on these factors into account, when they set goals.

In the banking industry, digital transformation aims to improve customer experience, reduce operational costs, and keep up with evolving market trends. And also it is important to promote technology innovation while also addressing cybersecurity risks and ensuring compliance. 

4 . Customer Experience: Bank performance as measured by customer feedback. Many banks send out client surveys to gather performance-related feedback; tracking these responses with some type of internal scorecard is helpful. Banks should set goals to reach high customer satisfaction and retention rates. 

5. Sustainability Metrics: Incorporating environmental, social, and governance (ESG) factors into KPI tracking.

Conclusion

Setting goals may help banks to focus and align. And it will help banks and their employees to gauge how close they are to achieving their goals. It can help determine whether it is needed to adjust the initial plan.

Achieving initial goals may make people feel more motivated to achieve future goals. Setting goals may also help to identify key areas that need to improve or need change to ensure success.

This article explores the application of goal setting in the banking industry, which may help significantly improve.

References

Erdogan, B., Ozyilmaz, A., Bauer, T. N., & Emre, O. (2018). Accidents happen: Psychological empowerment as a moderator of accident involvement and its outcomes. Personnel Psychology, 71(1),  67–83.

Locke, E.A. and Latham, G.P., 1990. A theory of goal setting and task performance. Englewood Cliffs, NJ: Prentice Hall.

Latham, G.P. and Locke, E.A., 2007. New developments in and directions for goal-setting research. European Psychologist, 12(4), pp.290-300.

Seijts, G.H. and Latham, G.P., 2005. Learning versus performance goals: When should each be used? Academy of Management Perspectives, 19(1), pp.124-131.